Trading: TSX: ROC
TORONTO, Feb. 6 /CNW/ - Rothmans Inc. today announced strong results for the third quarter and first nine months of fiscal 2008, which ended December 31, 2007.
Rothmans' earnings for the third quarter of fiscal 2008 were $C29.4 million, or $0.43 basic earnings per share, compared with $24.1 million or $0.35 basic earnings per share in the third quarter of fiscal 2007. For the first nine months of this fiscal year, Rothmans' earnings were $96.6 million or $1.42 basic earnings per share, compared with $81.7 million or $1.20 per share for the first nine months of the prior fiscal year.
Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, increased to $170.8 million in the most recent quarter compared with $153.6 million in the third quarter of fiscal 2007. Sales in the first nine months of this fiscal year were $527.9 million compared with $481.7 million for the same period a year earlier.
RBH's EBITDA margin for the third quarter was 49.8% compared with 53.3% in the prior quarter and 46.4% in the quarter ended December 31, 2006. The reduction in EBITDA margin from the prior quarter was mainly due to lower shipment volumes and higher general and administrative expenses. The increase in EBITDA margin over the prior year was predominantly due to the effect of price increases across all product categories, partially offset by volume shifts into the lowest priced tier of the cigarette price category and higher general and administrative expenses.
RBH shipped a total of 2.7 billion equivalent sticks into the domestic market during the third quarter of fiscal 2008, unchanged from the same period in fiscal 2007. For the nine months ended December 31, 2007, domestic shipments were 8.4 billion equivalent sticks, compared with 8.3 billion equivalent sticks in the comparable period of the prior year. Higher price category cigarette volumes continued to offset declines in premium cigarette and fine cut volumes.
"RBH continued to deliver strong performance in the third quarter compared to the prior year with increases in volumes shipped and strong results in all significant financial measures," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "This has been accomplished despite variability in the growth rate of the cigarette price category and an increase in contraband product which has significantly reduced legitimate tax paid industry volumes."
Outlook
"RBH continues to have strong product offerings and we feel confident in our ability to compete within the tax paid industry," said Mr. Barnett. "Contraband however has not gone away and continues to weigh heavily on all legitimate industry participants including RBH. Without concerted efforts by governments to enforce existing laws, contraband tobacco products will likely continue to be a significant problem in our country."
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.35 per share payable on March 17, 2008 to shareholders of record at the close of business on March 4, 2008.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the third quarter results at 8:30 a.m. Toronto time on Wednesday, February 6, 2008. In order to listen to the conference call, shareholders are invited to call 1-866-226-1792 or 416-340-8010.
The call will also be webcast through the Company's investor website, www.rothmansinc.ca. At the completion of the conference call, a recording will be available until February 14, 2008 by calling 1-800-408-3053 or 416-695-5800 and entering reservation number 3250341. The recording can also be accessed through the investor website.
Media are invited to listen to the call and to contact Karen Bodirsky at (416) 442-3660 for further information.
About Rothmans Inc.
Rothmans Inc. is a widely held, publicly traded Canadian company that participates in the Canadian tobacco industry through 60%-owned Rothmans, Benson & Hedges Inc., Canada's second largest tobacco company. RBH currently employs more than 750 people at its head office in Toronto, its sales offices across Canada and its manufacturing facilities in Brampton, Ontario and Quebec City, Quebec where it has been operating for over 100 years. Rothmans is Canada's only publicly traded company with interests exclusively in the tobacco industry and is listed on the Toronto Stock Exchange under the symbol ROC.
Management's Discussion and Analysis
for the fiscal quarter and nine months ended December 31, 2007
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Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides shareholders with a review of significant developments in the Company's financial performance in the fiscal quarter and nine months ended December 31, 2007 compared with the same periods in the prior year. It also discusses factors that could affect future performance. This MD&A should be read in conjunction with the attached unaudited consolidated financial statements for the period ended December 31, 2007, the annual MD&A contained in the 2007 Annual Report and the audited annual consolidated financial statements of the Company for the year ended March 31, 2007. The results reported herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are presented in Canadian dollars. This MD&A is current as of February 5, 2008.
Responsibility of Management and the Board of Directors
Management is responsible for the information disclosed in this MD&A and has in place the appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, the Company's Audit Committee and Board of Directors provide an oversight role with respect to all public financial disclosures by the Company, and have reviewed and approved this MD&A and the accompanying unaudited consolidated financial statements.
Disclosure Controls and Procedures and Internal Controls over Financial
Reporting
The Chief Executive Officer and Chief Financial Officer have designed disclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.
With respect to internal controls over financial reporting, the Chief Executive Officer and Chief Financial Officer have designed them, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with Canadian Generally Accepted Accounting Principles.
During the Company's most recent interim period, there were no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Forward-Looking Statements
Certain statements contained in this MD&A and other sections of this document (in particular the sections entitled "Industry Overview" and "Outlook") constitute "forward-looking statements" and express views as to future events, circumstances and trends relating to RBH's business and the Company. Words such as "plans," "intends," "outlook," "expects," "anticipates," "estimates," "believes," "should" and similar expressions may identify forward-looking statements. Forward-looking statements are based on management's current expectations and assumptions and entail various risks and uncertainties. There is no assurance that any forward-looking statement will materialize. Actual results may differ materially from these expectations and forward-looking statements, if known and unknown risks or uncertainties affect RBH's business or the Company, or if management's expectations or assumptions prove to be inaccurate. Unless otherwise indicated, forward-looking statements describe expectations as of February 5, 2008.
Factors that could cause the Company's actual results to differ materially from the forward-looking statements contained herein include, but are not limited to: government claims and potential claims, including the results of ongoing investigations; product liability claims; increases in the levels of contraband product in the market; increased competition and competitor initiatives; the variability in the rate of growth in the cigarette price category; continued declines in consumption of tobacco products; RBH's ability to continue to implement price increases; fluctuating wholesaler and consumer purchasing patterns; changes in government taxation policy; changes in government legislation and regulation including legislation banning the display of tobacco products in retail stores; new product standards; and dependence on the domestic tobacco market.
The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether the result of new information, future events or otherwise. Additional information concerning risks and uncertainties affecting RBH's business and the Company and other factors that could cause financial results to fluctuate is set forth below under "Risks and Uncertainties" and "Outlook" and is contained in the Company's filings with Canadian securities regulatory authorities, including the Company's Annual Information Form (in particular under "Legal Proceedings" and "Risk Factors") available on SEDAR at www.sedar.com or on the Company's website at www.rothmansinc.ca.
Terminology used in this MD&A
Throughout this MD&A, "GAAP" refers to Canadian Generally Accepted Accounting Principles, "Rothmans" and "the Company" refer to Rothmans Inc., "RBH" refers to Rothmans, Benson & Hedges Inc., which is 60%-owned by Rothmans Inc., and "EBITDA margin," a key measure of RBH's operating performance, refers to RBH's "earnings before interest, taxes, depreciation and amortization" as a percentage of "sales, net of excise duty and taxes."
EBITDA margin provides a metric allowing period-to-period comparisons of the core RBH operating performance before the impact of changes in capital structure, interest, taxes and capital spending and does not include income from investments earned by the Company or the expenses related to operating Rothmans Inc. as a public company. EBITDA margin is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies.
The "recent quarter" refers to the three months ended December 31, 2007, and "prior quarter" refers to the three months ended September 30, 2007. "Fiscal 2008" or "recent fiscal year" refers to the fiscal year ending March 31, 2008 and other similar references to a fiscal year (e.g., fiscal 2007) refer to the fiscal year then ended on March 31 (e.g., March 31, 2007).
"The three major suppliers of tobacco products" or "three majors" refers to RBH, Imperial Tobacco Canada Limited (ITL) and JTI-MacDonald Corp. (JTI). "Premium cigarettes" refers to tailor-made cigarettes sold at premium retail prices, "cigarette price category" refers to cigarettes sold at less-than-premium prices and "price category" refers to the combination of the cigarette price category and the fine cut category (loose tobacco and pre-portioned tobacco sticks). "Domestic composite market" refers to all fully tax-paid cigarettes and fine cut tobacco products sold into the Canadian market. "CTMC" refers to the Canadian Tobacco Manufacturers Council.
New Accounting Pronouncements
As required by The Canadian Institute of Chartered Accountants ("CICA"), on April 1, 2007, the Company adopted CICA Handbook Section 3855 "Financial Instruments - Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure and Presentation" and Section 1530 "Comprehensive Income".
Sections 3855 and 3861 prescribe when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet, and at what amount. These sections also specify how financial instrument gains and losses are to be presented. The prospective adoption of this new standard resulted in changes in the accounting and presentation for financial instruments as well as the recognition of certain transitional adjustments that have been recorded in opening retained earnings as described in note 2. As required by the implementation of the new standard, the comparative Interim Consolidated Financial Statements have not been restated.
CICA Handbook Section 1530, "Comprehensive Income," introduces a new requirement to temporarily present certain gains and losses outside net income in other comprehensive income or loss. Refer to note 2 for more details.
The implementation of these Handbook requirements did not have a material impact on the financial results of the Company.
The following are the new accounting standards the Company plans to adopt effective fiscal year ending March 31, 2009. Management is evaluating the standards and their impact on the Company's consolidated financial statements.
The CICA Handbook Section 3031 "Inventories" prescribes the accounting treatment for inventories. Specifically, the section provides guidance relating to the accounting for inventories and revises and enhances the requirements for assigning costs to inventories. Section 3031 applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008.
CICA Handbook Section 1535 "Capital Disclosures" requires that an entity disclose information that enables users of its financial statements to evaluate an entity's objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance. This section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.
The new Sections 3862 and 3863 replace Handbook Section 3861 "Financial Instruments - Disclosure and Presentation," revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. Sections 3862 and 3863 apply to interim and annual financial statements for fiscal years beginning on or after October 1, 2007.
Industry Overview
In the absence of industry volumetric data previously shared through the CTMC, RBH is unable to provide an accurate estimate of the recent quarter and fiscal year-to-date tax paid industry volume. However, RBH management believes that a number of factors continue to affect overall industry shipments, including:
- Contraband - During the previous quarter, the CTMC released a study
on the illicit usage of cigarettes in the Canadian marketplace. This
study indicated that 22% of the national cigarette volume being
purchased was contraband product; up from 16.5% found in a similar
study conducted a year earlier. High taxes reflected in the selling
price to the consumer contribute to probable increases in the
presence of contraband product in the domestic market.
- Seasonal trends in consumer purchasing patterns - The period between
April and September has demonstrated stronger shipments than the
period between October and March. RBH management believes that
smoking restrictions are causing consumer consumption variations
between the summer and winter seasons.
- Fluctuations in wholesaler buying patterns - Swings in wholesaler
purchasing patterns motivated by the timing of tax increases, price
increases, manufacturer trade programs, manufacturer trade terms and
other factors are anticipated to have a significant effect on
quarter-to-quarter sales volumes.
- Continued declines in consumer consumption of tobacco products.
During the first quarter of the current fiscal year, the Province of Alberta raised its Provincial Tobacco Tax on cigarettes and fine cut products by $5.00 per carton, or equivalent stick basis.
Subsequent to the recent quarter end, on January 1, 2008, the federal excise duty applicable to cigarettes, tobacco sticks and fine cut products was raised by $0.59, $0.55 and $0.39 respectively, on a per carton or equivalent stick basis, in order to offset the effect of the 1% GST reduction.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended December 31, 2007, RBH shipped a total of 2.7 billion equivalent sticks into the domestic market, unchanged from the comparable period of the prior year, with increases in price category cigarette volumes offsetting declines in premium cigarette and fine cut volumes. In comparison to the prior quarter, third quarter volumes declined to 2.7 billion equivalent sticks from 2.8 billion equivalent sticks due to lower volumes in the premium cigarette and price cigarette categories. Fiscal year to date shipments were 8.4 billion equivalent sticks, compared to 8.3 billion equivalent sticks in the nine months ended December 31, 2006. The higher volume is attributable to increased price cigarette volumes mostly offset by declines in premium cigarette and fine cut volumes. While in previous reporting periods the rate of growth of the cigarette price category appeared to moderate, more recently there has been variability in the rate of growth of this category which management believes is attributable to competition within the tax-paid industry at the lowest cigarette price tier.
As previously disclosed, the industry no longer shares industry volumetric data through the CTMC. Therefore, RBH no longer has access to information on total tax paid industry volumes and is unable to accurately estimate RBH's market share.
RBH's recent quarter EBITDA margin was 49.8% compared with 46.4% in the quarter ended December 31, 2006 and 53.3% in the quarter ended September 30, 2007. The lower recent quarter EBITDA margin compared with the prior quarter was mainly due to lower shipment volumes and higher general and administrative expenses. The increase in EBITDA margin over the prior year was predominantly due to the effect of price increases across all product categories, partially offset by volume shifts into the lowest priced tier of the cigarette price category and higher general and administrative expenses.
In the nine months ended December 31, 2007, RBH implemented various price changes for its products. Most recently, in December 2007, RBH decreased the price charged to wholesalers for its Accord brand price category cigarettes by $1.98 per carton in Quebec and Ontario. This price reduction, in response to competitive activity in the market, maintains RBH's commitment to remaining competitive in the lowest cigarette price tier, where price sensitivity is most prevalent.
During the previous quarter, RBH increased the price on Mark Ten and Canadian Classics price category brands by $1.00 per carton in Quebec and Ontario, respectively. During the quarter ended June 30, 2007, RBH increased the prices charged to wholesalers by $1.00 per carton for the Carreras, Davidoff and ROOFTOP premium brands, $1.50 per carton for all other premium brands and $1.00 per carton for all price category cigarettes other than the Accord brand. Prices on fine cut products, cigars and pipe tobacco were increased by varying amounts depending on format.
During the recent quarter, RBH launched the internationally recognized brand Parliament into the premium cigarette category in selected provinces.
Effective July 30 2007, RBH implemented changes to its wholesale distribution terms, moving from a 2% prompt payment discount to a fee-for-service model nationally with the exception of Newfoundland and Labrador where terms remain unchanged. This change in distribution terms has had no material impact on distribution costs incurred since the change in terms was implemented.
Rothmans Inc. Financial Results
Basic earnings per share were $0.43 in the recent quarter and $1.42 for the nine months ended December 31, 2007 compared with $0.35 and $1.20 in the comparable periods of the prior year.
RBH's sales, net of excise duty and taxes in the recent quarter, increased by $17.2 million to $170.8 million compared to the same period of the prior year. Compared to the prior quarter, sales, net of excise duty and taxes decreased by $8.9 million due to lower shipment volumes mainly as a result of seasonality. For the nine months ended December 31, 2007, sales, net of excise duty and taxes were $527.9 or $46.2 million higher than the comparable period of the prior year. Increased volumes of RBH price category cigarettes, together with price increases across all categories, more than compensated for the impact of volume declines in premium cigarettes and fine cut products and shifts into the cigarette price category.
Investment income increased to $3.4 million in the recent quarter from $2.6 million in the comparable period of the prior year due to the higher average cash, cash equivalents and short-term investment balances held and a higher rate of return experienced during the quarter ended December 31, 2007.
Recent quarter operating costs increased to $87.1 million from $83.3 million in the comparable period of the prior year mainly due to higher general and administrative costs. For the fiscal year to date, operating costs were $252.3 million compared with $244.0 million in the nine months ended December 31, 2006 mainly attributable to higher general and administrative costs including compensation related expenses.
Income tax expense was $32.9 million in the recent quarter and $107.3 million in the fiscal year to date, resulting in an effective tax rate of 40.2% and 40.1% respectively. This compares with effective tax rates of 40.6% in both of the comparable periods of the prior fiscal year. The Company expects its effective tax rate for fiscal 2008 will be 40.0%.
Capability to Deliver Results
Cash Flow
RBH's operations generate significant cash resources. These are currently sufficient to fund interest payments on RBH's long-term debt, capital expenditures and dividends to its shareholders. Based on RBH's historical earnings levels, the dividends received by Rothmans from RBH are expected to be sufficient to fund its operations, pay dividends to its public shareholders and continue to accumulate cash reserves.
RBH's cash flow from operations before changes in working capital was $58.9 million in the recent quarter and $179.2 million in the nine months ended December 31, 2007 compared with $48.1 million and $150.9 million in the same periods of the prior fiscal year. RBH's ability to generate cash from operations is generally sufficient to fund the day-to-day financing needs of RBH's business. It is anticipated that additional funds, should they be required, would be obtained through short-term bank borrowings.
During the recent quarter, the Company paid dividends of $23.8 million, representing a dividend of $0.35 per share.
Cash Resources
Cash, cash equivalents and short-term investments of $230.7 million at December 31, 2007 represented the consolidated cash resources of the Company versus $172.2 million at March 31, 2007. The increase in cash, cash equivalents and short-term investments is predominantly due to earnings from RBH's operations and normal quarterly fluctuations in RBH's working capital requirements. On a non-consolidated basis, Rothmans held cash, cash equivalents and short-term investments of $157.0 million at December 31, 2007, an increase from $120.8 million at March 31, 2007. This increase resulted from dividends paid by RBH, and received by the Company, partially offset by the payment of dividends by the Company.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Although these estimates are based on management's best knowledge of current events and actions that the Company and RBH may undertake in the future, actual results could differ from these estimates. Other than as discussed below, there are no critical accounting estimates that require disclosure or discussion in this report.
Employee Future Benefits
The actuarial assumptions used to determine the benefit obligation and associated expense of RBH's various defined benefit pension plans and other benefits were not adjusted in the recent quarter. Therefore, the discount rate, the expected return on plan assets and other assumptions remain as described in the annual MD&A for the year ended March 31, 2007.
Compensation Plans
RBH has several incentive based compensation plans that require the Company to make estimates and assumptions of future financial and operating performance to estimate the ultimate amounts payable under these plans. Changes in estimates of future financial and operating performance could result in material adjustments to amounts recognized in the financial statements.
Litigation Contingent Liabilities
As discussed in the annual MD&A for the year ended March 31, 2007, the Company and RBH have been the subjects of various legal actions, proceedings, investigations and claims. Based on the stage of those proceedings, management is unable to meaningfully estimate the liability, if any, that might result from claims or investigations and neither the Company nor RBH has accrued for potential liabilities. However, the outcome of any claims, proceedings or investigations is uncertain. These claims, potential claims or investigations if decided unfavourably against the Company or RBH or if settled, either individually or in the aggregate, could involve significant damages or payments, which would have a significant adverse effect on the financial condition of the Company and which, in the case of an adverse judgment, the Company and RBH may not have the resources to satisfy.
Risks and Uncertainties
Various legal actions, proceedings, claims and investigations arising out of the sale, distribution, manufacture, development, advertising and marketing of tobacco products are pending, have been threatened or may be instituted against the Company and RBH. These actions, claims, proceedings and investigations, both pending and threatened, are described in note 14 to the audited annual consolidated financial statements of the Company for the year ended March 31, 2007 and in note 9 to the interim unaudited consolidated financial statements for the nine months ended December 31, 2007. Other than as described below, there have been no developments of a material nature during the fiscal year-to-date concerning these matters.
As previously disclosed, RBH is currently the subject of an ongoing investigation by the RCMP relating to RBH's sales of products exported from Canada in the period 1989-1996. This investigation, of which RBH was notified in January 2002, is related to allegations that tobacco products manufactured and exported by RBH were illegally smuggled back into Canada during this period without payment of applicable excise and tobacco taxes and duties. In February 2003, the RCMP filed criminal charges against another Canadian tobacco products supplier and certain of its related parties alleging violations of the Criminal Code (Canada) in connection with the sale and export of tobacco products during the early 1990s. The preliminary hearing concluded in 2006. In May 2007, the Ontario Court of Justice ordered that company and its former chief executive officer to stand trial. Charges against six other executives were dismissed. All parties, other than that company, are seeking judicial review of the judge's decision. In September 2004, this other manufacturer was granted protection under the Companies' Creditors Arrangement Act (Canada) and since that time claims aggregating approximately $10 billion have been made against that company relating to unpaid taxes and duties on that company's export sales of tobacco products during the early 1990s. Although no action has been commenced and no charges laid against the Company or RBH or any of their present or former employees, officers or directors, the Company and RBH believe that the RCMP and federal and provincial governments are contemplating laying charges or commencing other legal proceedings involving the Company or RBH and certain of their employees, officers and directors relating to or arising from these allegations.
As previously disclosed, in January 2001 the Province of British Columbia initiated a lawsuit in the Supreme Court of British Columbia against RBH, the Company and numerous other Canadian and international tobacco companies and various tobacco trade associations seeking unspecified damages in an amount to cover the costs that allegedly have been, or will be, incurred by the Government of British Columbia in providing health care benefits to British Columbia residents who have allegedly suffered smoking-related illnesses. The action was brought pursuant to the Tobacco Damages and Health Care Costs Recovery Act (British Columbia). A motion brought by the federal government is scheduled to be heard in March 2008. The federal government is seeking to strike out a third party notice which would make the federal government a party to the lawsuit. The Company was advised in September 2007 that the trial is currently scheduled for the fall of 2010.
As previously disclosed, in June 2006 the Province of New Brunswick passed the Tobacco Damages and Health Care Costs Recovery Act. In September 2007, this Province announced that it had retained a consortium of lawyers on a contingency fee basis to act for it in a proposed action against tobacco product manufacturers to recover health care costs that allegedly have been, or will be, incurred by the Province in respect of alleged smoking-related illnesses.
As previously disclosed, the three majors challenged the constitutionality of the Tobacco Act (Canada) which was enacted by the federal government in 1997. In June 2007, the Supreme Court of Canada issued its decision on the constitutionality of the Tobacco Act (Canada), allowing the appeals of the federal government and dismissing the cross appeals of the three major suppliers of tobacco products. Essentially, the Supreme Court of Canada ruled that the legislative and regulatory provisions at issue, when properly interpreted, were constitutionally valid.
It is not possible to predict the outcome of legal claims or investigations, pending and future, against the Company or RBH. Legal proceedings and investigations are subject to many uncertainties, and it is possible that there will be adverse developments in the claims and investigations pending against the Company and RBH or that these claims and investigations, and any potential future claims and investigations, could be decided unfavourably against the Company and RBH. The Company and RBH may also decide to settle current or future claims or investigations if it is believed to be in the best interests of the Company and RBH. An unfavourable outcome or settlement could involve significant damages or significant monetary payments that would have a significant adverse effect on the financial condition of the Company and which, in the case of an adverse judgment, the Company and RBH may not have the resources to satisfy.
In January 2008 Canada Revenue Agency announced that a federal tobacco stamping regime which would be applicable to all Canadian tobacco product manufacturers is proposed to be implemented in the summer of 2008. The new regime would require prescribed stamps to be applied to tobacco products which indicate that applicable excise duty has been paid. RBH is currently discussing these and other anti-contraband measures with government authorities. The impact of compliance with the new stamping requirements and other anti-contraband measures and implementing the necessary plant equipment upgrades within the announced implementation time frame, including anticipated increased operating costs, cannot be determined by RBH until such time as details of the new requirements have been finalized.
In November 2007, the Province of Alberta passed the Tobacco Reduction Act. This Act will, among other things, ban the display, promotion, and advertising of tobacco products in any place where tobacco is sold. The effective date for the ban is July 1, 2008.
In November 2007, the Province of British Columbia introduced amendments to the Tobacco Control Act. The amendments, which take effect March 31, 2008, include a ban on the display and advertising of tobacco products in all places where tobacco products are sold that are accessible to youth under nineteen (19) years of age.
Additional information concerning legal matters affecting the Company and RBH are contained in the Company's filings with securities regulatory authorities including the Company's 2007 Annual Report and 2007 Annual Information Form (in particular under "Legal Proceedings") which can be accessed at www.sedar.com or on the Company's website at www.rothmansinc.ca
Outlook
It is believed that the presence of contraband remains a key factor in affecting both RBH and total tax-paid industry volumes. Continued availability of contraband product in the domestic market as a result of high tobacco tax rates across the country may cause further declines in tax-paid industry volumes in the future resulting in a negative impact on RBH's sales volumes.
Competition by each of the three major suppliers of tobacco products in the cigarette price category has led to substantial growth of that category in recent years, and there continues to be a significant degree of variability in the underlying business trends, making it difficult to accurately estimate the impact on consumer purchasing patterns.
Looking ahead, Rothmans expects that a number of factors could affect its financial performance including:
- the success of efforts by the Company and RBH to defend themselves
against legal claims and investigations and the outcome or settlement
of such claims and investigations that are ongoing or may arise in
the future;
- increased levels of contraband product that may occur due to the high
tax environment;
- the impact of continued high levels of taxation on consumer
purchasing patterns;
- the variability in the rate of growth of the cigarette price category
and RBH's ability to successfully compete in that segment;
- price competition within the lowest price tier of the cigarette price
category;
- continued declines in the consumption of tobacco products;
- RBH's ability to continue to implement price increases for its
products;
- RBH's ability to compete successfully in the premium cigarette
category;
- the continued volatility in the cigarette market as a result of the
evolution of the Canadian cigarette price category, varying
wholesaler purchasing patterns and seasonal fluctuations in smoker
consumption;
- the impact of continued restrictive legislation and regulations over
the sale of tobacco products including legislation banning the
display of tobacco products in retail stores;
- RBH's ability to maintain its leading position in the fine cut
segment;
- government tax policy regarding the differentiation in tax rates
applicable to fine cut products in comparison to tailor-made
cigarettes; and
- RBH's continued success in maintaining or reducing costs, especially
in view of the potential for regulated changes to product
specifications including the proposed new tobacco stamping regime
recently announced by Canada Revenue Agency.
Interim Consolidated Statements of Earnings and Retained Earnings
Three months ended Nine months ended
(In thousands of dollars, December 31 December 31
except per share amounts) 2007 2006 2007 2006
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EARNINGS
Revenues:
Sales, net of excise duty
and taxes 170,822 153,606 527,925 481,729
Investment income 3,406 2,570 9,181 6,844
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Total revenues 174,228 156,176 537,106 488,573
Costs:
Operating costs excluding
amortization 87,055 83,283 252,291 244,047
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Earnings before interest,
income taxes, amortization
and minority interest 87,173 72,893 284,815 244,526
Amortization 2,856 3,292 9,619 9,124
Interest expense (income)
- Long-term debt 2,094 2,094 6,268 6,269
- Other 424 22 969 (4)
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Earnings before income taxes
and minority interest 81,799 67,485 267,959 229,137
Income taxes
- Current 32,038 27,083 105,800 91,697
- Future 838 321 1,532 1,439
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Total income taxes 32,876 27,404 107,332 93,136
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Earnings before minority
interest 48,923 40,081 160,627 136,001
Minority interest 19,513 15,954 64,043 54,286
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Earnings for the period 29,410 24,127 96,584 81,715
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Earnings per common share
(note 3)
- Basic 0.43 0.35 1.42 1.20
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------------------------------------------
- Diluted 0.43 0.35 1.41 1.19
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RETAINED EARNINGS
Balance at beginning of
period 113,325 85,292 86,645 68,513
Transitional adjustment on
adoption of new accounting
policies (note 2) - - 344 -
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Balance at beginning of
period as restated 113,325 85,292 86,989 68,513
Earnings for the period 29,410 24,127 96,584 81,715
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142,735 109,419 183,573 150,228
Dividends paid:
Common Shares - (23,822) (20,410) (64,660) (61,219)
(Q3 2008 - $0.35 per share)
(Q3 2007 - $0.30 per share)
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Balance at end of period 118,913 89,009 118,913 89,009
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Rothmans Inc. and subsidiary companies (unaudited)
Interim Consolidated Balance Sheets
As at As at
December 31 March 31
(In thousands of dollars) 2007 2007
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ASSETS
Current Assets
Cash and cash equivalents 108,167 75,228
Short-term investments 122,562 96,987
Accounts receivable 4,827 8,851
Inventories 180,897 201,637
Prepaid expenses 1,828 1,969
Future income taxes 9,883 3,418
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Total current assets 428,164 388,090
Property, plant and equipment 69,591 71,023
Future income taxes 2,990 11,339
Prepaid pension benefit cost 18,318 12,958
Long-term debt deferred financing charges - 1,102
Other assets 1,380 1,415
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520,443 485,927
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LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities 58,565 38,067
Excise and other taxes payable 59,729 69,471
Income taxes payable 31,956 31,939
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Total current liabilities 150,250 139,477
Other long-term liabilities 9,530 17,735
Other employee future benefits 37,024 35,915
Long-term debt 148,897 149,794
Minority interest in subsidiary company 8,101 8,828
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353,802 351,749
--------------------
SHAREHOLDERS' EQUITY
Capital stock (note 5) 47,728 47,533
Retained earnings (note 2) 118,913 86,645
--------------------
Total shareholders' equity 166,641 134,178
--------------------
520,443 485,927
--------------------
--------------------
Rothmans Inc. and subsidiary companies (unaudited)
Interim Consolidated Statements of Cash Flows
Three months ended Nine months ended
December 31 December 31
(In thousands of dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash provided by (used in):
OPERATING ACTIVITIES
Earnings for the period 29,410 24,127 96,584 81,715
Adjusted for non-cash items:
Amortization of property,
plant and equipment 2,856 3,223 9,619 8,919
Amortization of financing
charges and bond discount - 69 - 205
Non-cash interest expense 407 - 942 -
Minority interest 19,513 15,954 64,043 54,286
Future income taxes 838 321 1,532 1,439
Gain on disposal of property,
plant & equipment (431) (244) (412) (242)
Defined & other employee
future benefits expense 3,087 1,517 6,687 4,359
Defined & other employee
future benefits funding (494) (493) (10,938) (5,372)
Long-term incentive plan 4,571 4,168 12,569 6,610
------------------------------------------
59,757 48,642 180,626 151,919
Changes in non-cash operating
working capital (note 4) 2,405 (40,173) 13,108 2,151
------------------------------------------
62,162 8,469 193,734 154,070
------------------------------------------
INVESTING ACTIVITIES
Additions to property,
plant & equipment, net (3,429) (823) (7,775) (6,277)
Proceeds on disposal of
short-term investments (122,562) (96,987) (23,780) (15,120)
------------------------------------------
(125,991) (97,810) (31,555) (21,397)
------------------------------------------
FINANCING ACTIVITIES
Dividends paid -
By the Company (23,822) (20,410) (64,660) (61,219)
By a subsidiary company
to minority shareholder (19,200) (16,960) (65,000) (65,961)
Proceeds on issuance of
common shares - 83 195 2,096
------------------------------------------
(43,022) (37,287) (129,465) (125,084)
------------------------------------------
Increase (decrease) in cash
and cash equivalents during
the period (106,851) (126,628) 32,714 7,589
Cash and cash equivalents at
beginning of period, after
adjustment (note 2) 215,018 182,581 75,453 48,364
------------------------------------------
Cash and cash equivalents
at end of period 108,167 55,953 108,167 55,953
------------------------------------------
------------------------------------------
Supplementary Disclosures (note 4)
Rothmans Inc. and subsidiary companies (unaudited)
Notes to the Interim Consolidated Financial Statements (Unaudited)
(Tabular amounts are in thousands of dollars, except for share and per
share data or as otherwise indicated)
1. Summary of Significant Accounting Policies
The interim unaudited consolidated financial statements of Rothmans
Inc. (the "Company") have been prepared in accordance with Canadian
generally accepted accounting principles. The note disclosure in
these interim unaudited consolidated financial statements includes
only material changes from the disclosure found in the Company's
annual audited consolidated financial statements for the year ended
March 31, 2007. Therefore, these interim unaudited consolidated
financial statements and notes should be read in conjunction with
those statements. These interim unaudited consolidated financial
statements follow the same accounting policies as the Company's
audited annual consolidated financial statements, except as described
in note 2.
2. Change in Accounting Policies
Effective April 1, 2007, the Company adopted The Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 1530,
"Comprehensive Income" Section 3855, "Financial Instruments -
Recognition and Measurement" and Section 3861, "Financial Instruments
- Disclosure and Presentation." The prospective adoption of these new
standards resulted in changes in the accounting and presentation for
financial instruments and the recognition of certain transitional
adjustments that have been recorded in opening retained earnings as
described below. There was no change resulting from the adoption of
these standards that required the Company to record other
comprehensive income. The principal changes in the accounting for
financial instruments due to the adoption of these accounting
standards are described below. As required by the standards, the
comparative Interim Consolidated Financial Statements (unaudited)
have not been restated.
(a) Section 3855 "Financial Instruments - Recognition and
Measurement"
Section 3861 "Financial Instruments - Disclosure and
Presentation"
Under the new standards, financial assets and financial liabilities
are initially recognized at fair value and their subsequent
measurements are dependent on their classification as described
below. Their classification depends on the purpose, for which the
financial instruments were acquired or issued, their characteristics
and the Company's designation of such instruments. The standards
require that all financial assets be classified either as held-for-
trading ("HFT"), available-for-sale ("AFS"), held-to-maturity ("HTM")
or as loans and receivables. The standards require that all financial
assets, including all derivatives be measured at fair value with the
exception of loans and receivables, assets classified as HTM and AFS
financial assets that do not have quoted market prices in an active
market.
Classification of financial instruments
The following is a summary of the assets and liabilities the Company
evaluated and the accounting policy elected to apply to its
significant categories of financial instruments outstanding as of
April 1, 2007:
Cash Designated as held-for-trading
Cash equivalents and short-term Designated as held-to-maturity
investments or held-for-trading
Accounts receivable Loans and receivables
Accounts payable and accrued Other liabilities
liabilities
Excise tax and other taxes payable Other liabilities
Other long-term liabilities Designated as held-to-maturity
Long-term debt Designated as held-to-maturity
Held-for-trading
HFT financial assets are financial assets typically acquired for
resale prior to maturity. They are measured at fair value at the
balance sheet date. Interest earned and accrued is included in
investment income. The Company designated cash as HFT and it is
measured at fair value as at the consolidated balance sheet date.
Short-term investments are classified as held-to-maturity or
held-for-trading depending on their nature and the Company's intent.
Portfolio equity instruments that are quoted in an active market are
designated as held-for-trading and are accounted for at fair value.
There was no adjustment resulting from this designation.
Held-to-maturity
HTM financial assets are non-derivative financial assets with fixed
or determinable payments and a fixed maturity when the Company has
the intention and the ability to hold these financial assets to
maturity. These financial assets are measured at amortized cost.
Short-term investments are classified as held-to-maturity or
held-for-trading depending on their nature and the Company's intent.
Short-term investments in debt securities are designated as held-to-
maturity and are accounted for at amortized cost. As at the
consolidated balance sheet date, interest income receivable of
$0.9 million was included in cash equivalents.
Other long-term liabilities are designated as held-to-maturity and
accounted for at amortized cost. These liabilities are initially
recognized at fair value and subsequently accounted for at amortized
cost. The transitional adjustment reducing other long-term
liabilities amounted to $0.9 million at the date of adoption. The
adjustment reducing other long-term liabilities for the period ended
December 31, 2007 amounted to $0.3 million.
Available-for-sale
AFS financial assets are those non-derivative financial assets that
are designated as AFS financial assets, or that are not classified as
loans and receivables, HTM investments or HFT financial assets. AFS
financial assets are carried at fair value with unrealized gains and
losses to be included in other comprehensive income until realized
when the cumulative gain or loss is recognized in earnings. The
Company has not designated any financial assets as AFS.
Loans and receivables
Loans and receivables are accounted for at amortized cost.
Other liabilities
Other liabilities are recorded at amortized cost.
Transaction costs
Transaction costs related to HTM financial assets and liabilities are
netted against the carrying value of the liability and then amortized
over the expected life of the instrument using the effective interest
method. The deferred financing charges relating to the Company's
long-term debt issue were reclassified to the carrying value of the
long-term debt at the date of adoption.
Embedded derivatives
Derivatives embedded in other financial instruments or contracts are
separated from their host contracts and accounted for as derivatives
when their economic characteristics and risks are not closely related
to those of the host contract. Embedded derivatives are measured at
fair value with changes in fair value recognized in earnings. The
Company does not currently have any outstanding contracts with
embedded derivatives.
Determination of fair value
The fair value of a financial instrument is the amount of
consideration that would be agreed between parties. The fair value of
a financial instrument on initial recognition is the transaction
amount given or received. Subsequent to initial recognition, the fair
values of financial instruments that are quoted in active markets are
based on bid prices for financial assets held and offer prices for
financial liabilities. When independent prices are not available, the
fair values are determined using valuation techniques using
observable market data of similar instruments, discounted cash flow
analysis and other valuation techniques commonly used by market
participants. A number of factors such as bid-offer spread and credit
profile are taken into account, as appropriate, when values are
calculated using valuation techniques.
(b) Section 1530 "Comprehensive Income"
The Company determined that as at the date of adoption and for the
year-to-date ended December 31, 2007 there were no material gains or
losses that would be recorded in other comprehensive income or loss.
Transitional adjustments
The impact of adopting these standards as at April 1, 2007 is as
follows:
As at As at
March 31, April 1,
2007 Adjustment 2007
---- ---------- ----
Assets
Cash and cash equivalents 75,228 225 75,453
Short-term investments 96,987 1,795 98,782
Accounts receivable 8,851 (2,020) 6,831
Long-term debt deferred
financing charges 1,102 (1,102) -
Future income taxes - long-term 11,339 (352) 10,987
Liabilities
Other long-term liabilities 17,735 (926) 16,809
Long-term debt 149,794 (1,102) 148,692
Minority interest 8,828 230 9,058
Shareholders' Equity
Retained earnings 86,645 344 86,989
The following are the new accounting standards the Company plans to
adopt effective fiscal year ending March 31, 2009. Management is
evaluating the standards and their impact on the Company's
consolidated financial statements.
The CICA Handbook Section 3031 "Inventories" prescribes the
accounting treatment for inventories. Specifically, the section
provides guidance relating to the accounting for inventories and
revises and enhances the requirements for assigning costs to
inventories. Section 3031 applies to interim and annual financial
statements for fiscal years beginning on or after January 1, 2008.
CICA Handbook Section 1535 "Capital Disclosures" requires that an
entity disclose information that enables users of its financial
statements to evaluate an entity's objectives, policies and processes
for managing capital, including disclosures of any externally imposed
capital requirements and the consequences of non-compliance. This
section applies to interim and annual financial statements relating
to fiscal years beginning on or after October 1, 2007.
The new Sections 3862 and 3863 replace Handbook Section 3861
"Financial Instruments - Disclosure and Presentation," revising and
enhancing its disclosure requirements, and carrying forward unchanged
its presentation requirements. These new sections place increased
emphasis on disclosures about the nature and extent of risks arising
from financial instruments and how the entity manages those risks.
Sections 3862 and 3863 apply to interim and annual financial
statements for fiscal years beginning on or after October 1, 2007.
3. Earnings per Common Share
Earnings per common share are calculated based on the weighted
average number of common shares outstanding, the dilution being due
to issued common share options.
Basic Diluted
---------------------------------------------------------------------
Nine months ended:
December 31, 2007 68,058,657 68,517,850
December 31, 2006 67,990,311 68,389,491
Three months ended:
December 31, 2007 68,063,808 68,582,439
December 31, 2006 68,026,183 68,440,143
4. Supplementary Cash Flow Disclosures
(a) Changes in non-cash operating working capital:
Three months ended Nine months ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Accounts receivable 648 (243) 2,004 927
Prepaid expenses 773 849 141 (73)
Inventories 7,087 (19,749) 20,740 5,109
Other assets 49 (11) 35 99
Accounts payable and
accrued liabilities 349 687 (87) (2,255)
Excise and other taxes
payable (11,681) (25,733) (9,742) (6,889)
Income taxes payable 5,180 4,027 17 5,233
---------------------------------------------------------------------
2,405 (40,173) 13,108 2,151
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Other
Three months ended Nine months ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------------------------------------
Income taxes paid 26,859 23,055 105,783 86,631
Interest paid:
- Long-term debt 4,164 4,164 8,328 8,328
- Other 26 41 71 82
5. Capital Stock
Authorized: An unlimited number of common shares
Issued: 68,063,808 (March 31, 2007 - 68,038,008) common shares
December 31 March 31
(in thousands of dollars) 2007 2007
---------------------------------------------------------------------
Balance at beginning of period, April 1 47,533 45,347
Issuance of shares 195 2,186
---------------------------------------------------------------------
Balance at end of period 47,728 47,533
---------------------------------------------------------------------
---------------------------------------------------------------------
In the third quarter of fiscal 2008, no shares (2007 - 11,000) were
issued due to the exercise of stock options.
6. Share Option Plan
A summary of the status of the Company's employee stock option plan
as at the periods ended December 31, 2007 and December 31, 2006 and
changes during the periods ended on those dates are presented below:
---------------------------------------------------------------------
Three months ended December 31
2007 2006
---------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Options Shares price Shares price
---------------------------------------------------------------------
Outstanding at beginning
of period 1,282,600 14.359 1,325,400 14.278
Exercised - - (11,000) 11.500
---------------------------------------------------------------------
Outstanding at end
of period 1,282,600 14.359 1,314,400 14.301
---------------------------------------------------------------------
---------------------------------------------------------------------
Options exercisable at
period end 1,282,600 14.359 1,314,400 14.301
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine months ended December 31
2007 2006
---------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Options Shares price Shares price
---------------------------------------------------------------------
Outstanding at beginning
of period 1,308,400 14.291 1,490,800 14.301
Exercised (25,800) 10.878 (176,400) 14.301
---------------------------------------------------------------------
Outstanding at end
of period 1,282,600 14.359 1,314,400 14.301
---------------------------------------------------------------------
---------------------------------------------------------------------
Options exercisable at
period end 1,282,600 14.359 1,314,400 14.301
---------------------------------------------------------------------
---------------------------------------------------------------------
Under the current share option plan as at December 31, 2007, a total
of 181,800 (2007 - 181,800) common shares were issuable. Given the
limited number of common shares available for issuance under the
Option Plan, the annual grant of options was discontinued effective
fiscal 2006. No options were forfeited during the period.
The following table summarizes information about stock options
outstanding as at December 31, 2007:
Weighted average
Number remaining Number
Range of exercise price outstanding contractual life exercisable
---------------------------------------------------------------------
$8.825(1) 3,000 2.6 3,000
$11.500(1) 143,000 3.4 143,000
$12.320(2) 315,600 5.4 315,600
$14.080(1) 261,400 3.8 261,400
$16.125(1) 248,000 4.4 248,000
$16.620(2) 311,600 6.4 311,600
---------------------------------------------------------------------
1,282,600 1,282,600
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Entitled upon exercise to a payment of $4.00 per share (amount
equal to special dividends paid since date of option grant).
(2) Entitled upon exercise to a payment of $1.50 per share (amount
equal to special dividends paid since date of option grant).
7. Employee Future Benefits Expenses
The Company's defined benefit pension plan and other benefits
expenses are as follows:
Three months ended Nine months ended
December 31 December 31
(in thousands of dollars) 2007 2006 2007 2006
---------------------------------------------------------------------
Defined benefit plan expenses
Pension benefit plans 2,019 679 3,858 1,842
Other benefits 1,068 838 2,829 2,517
---------------------------------------------------------------------
3,087 1,517 6,687 4,359
---------------------------------------------------------------------
---------------------------------------------------------------------
The Company's defined contribution pension plan expenses in the
quarter and year-to-date for fiscal year 2008 were $0.8 million and
$2.6 million, consistent with the same periods of the prior fiscal
year.
8. Seasonality
The period between April and September has demonstrated stronger
industry shipments than the period between October and March. This
seasonality is likely due to smoking restrictions that are causing
consumption variations between summer and winter seasons.
9. Litigation, Claims and Contingencies
The Company and RBH are subject to a number of claims and potential
claims, investigations and legislation, the nature and extent of
which has been described in note 14 to the audited annual
consolidated financial statements of the Company for the year ended
March 31, 2007. Other than as described below, there have been no
developments of a material nature during the fiscal year-to-date
concerning these matters.
As previously disclosed, RBH is currently the subject of an ongoing
investigation by the RCMP relating to RBH's sales of products
exported from Canada in the period 1989-1996. This investigation, of
which RBH was notified in January 2002, is related to allegations
that tobacco products manufactured and exported by RBH were illegally
smuggled back into Canada during this period without payment of
applicable excise and tobacco taxes and duties. In February 2003, the
RCMP filed criminal charges against another Canadian tobacco products
supplier and certain of its related parties alleging violations of
the Criminal Code (Canada) in connection with the sale and export of
tobacco products during the early 1990s. The preliminary hearing
concluded in 2006. In May 2007, the Ontario Court of Justice ordered
that company and its former chief executive officer to stand trial.
Charges against six other executives were dismissed. All parties,
other than that company, are seeking judicial review of the judge's
decision. In September 2004, this other manufacturer was granted
protection under the Companies' Creditors Arrangement Act (Canada)
and since that time claims aggregating approximately $10 billion have
been made against that company relating to unpaid taxes and duties on
that company's export sales of tobacco products during the early
1990s. Although no action has been commenced and no charges laid
against the Company or RBH or any of their present or former
employees, officers or directors, the Company and RBH believe that
the RCMP and federal and provincial governments are contemplating
laying charges or commencing other legal proceedings involving the
Company or RBH and certain of their employees, officers and directors
relating to or arising from these allegations.
As previously disclosed, in January 2001, the Province of British
Columbia initiated a lawsuit in the Supreme Court of British Columbia
against RBH, the Company and numerous other Canadian and
international tobacco companies and various tobacco trade
associations seeking unspecified damages in an amount to cover the
costs that allegedly have been, or will be, incurred by the
Government of British Columbia in providing health care benefits to
British Columbia residents who have allegedly suffered smoking-
related illnesses. The action was brought pursuant to the Tobacco
Damages and Health Care Costs Recovery Act (British Columbia). A
motion brought by the federal government is scheduled to be heard in
March 2008. The federal government is seeking to strike out a third
party notice which would make the federal government a party to the
lawsuit. The Company was advised in September 2007 that the trial is
currently scheduled for the fall of 2010.
As previously disclosed, in June 2006 the Province of New Brunswick
passed the Tobacco Damages and Health Care Costs Recovery Act. In
September 2007, this Province announced that it had retained a
consortium of lawyers on a contingency fee basis to act for it in a
proposed action against tobacco product manufacturers to recover
health care costs that allegedly have been, or will be, incurred by
the Province in respect of alleged smoking-related illnesses.
It is not possible to predict the outcome of legal claims or
investigations, pending and future, against the Company or RBH. Legal
proceedings and investigations are subject to many uncertainties, and
it is possible that there will be adverse developments in the claims
and investigations pending against the Company and RBH or that these
claims and investigations, and any potential future claims and
investigations, could be decided unfavourably against the Company and
RBH. The Company and RBH may also decide to settle current or future
claims or investigations if it is believed to be in the best
interests of the Company and RBH. An unfavourable outcome or
settlement could involve significant damages or significant monetary
payments that would have a significant adverse effect on the
financial condition of the Company, and which, in the case of an
adverse judgment, the Company and RBH may not have the resources to
satisfy.
Additional information concerning legal matters affecting the Company
and RBH are contained in the Company's filings with securities
regulatory authorities including the Company's 2007 Annual Report and
2007 Annual Information Form (in particular under "Legal
Proceedings") which can be accessed at www.sedar.com or on the
Company's website at www.rothmansinc.ca.
10. Comparative Figures
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current period.